2018 (10) TMI 1692 - AT - Income Tax

Partnership Firm Wins Deductions for Slum Rehab & Lease Income

Dy. Commissioner of Income-Tax, CC-3 (4), Central Range-3 Versus AHCL – PEL Patel Estate, Mumbai

Dy. Commissioner of Income-Tax, CC-3 (4), Central Range-3 Versus AHCL – PEL Patel Estate, Mumbai - TMI Issues Involved:1. Eligibility of deduction under section 80IB of the Income Tax Act.2. Eligibility of deduction under section 80IB on lease income.3. Alleged violation of section 80IB conditions due to merged flats exceeding 1000 sq. ft.4. Validity of the original assessment orders allowing 80IB deduction.5. Impact of amendments to section 80IB(10) and CBDT Circular No. 05/2010.6. Reliance on statements and evidence found during search operations.7. Interpretation of exemption notifications in light of Supreme Court rulings.Issue-wise Detailed Analysis:1. Eligibility of deduction under section 80IB of the Income Tax Act:The assessee, a partnership firm, claimed deductions under section 80IB for a slum rehabilitation project. The project was completed as per plans approved by the Slum Rehabilitation Authority (SRA), and the built-up area (BUA) of each residential unit was less than 1000 sq. ft. The CIT(A) and ITAT upheld the eligibility for the deduction, noting compliance with all necessary conditions.2. Eligibility of deduction under section 80IB on lease income:The assessee claimed deductions on lease income from unsold flats held as stock-in-trade. Initially disallowed by the AO, the ITAT allowed the deduction, determining that the lease income was 'derived from' the development of the housing project, thus qualifying under section 80IB.3. Alleged violation of section 80IB conditions due to merged flats exceeding 1000 sq. ft.:During a search, evidence suggested that some flats were merged, resulting in a combined area exceeding 1000 sq. ft. The CIT(A) and ITAT found that the construction was as per approved plans, and any merger of flats was done by the buyers post-possession. The authorities emphasized that the deduction could not be denied based on post-sale modifications by buyers.4. Validity of the original assessment orders allowing 80IB deduction:The original assessments for the years 2005-06 to 2007-08 allowed the 80IB deduction after detailed verification. The AO's subsequent disallowance based on search findings was overturned by CIT(A) and ITAT, which reinstated the original assessments' findings.5. Impact of amendments to section 80IB(10) and CBDT Circular No. 05/2010:The amendments to section 80IB(10) by the Finance Act, 2009, and the CBDT Circular No. 05/2010 were deemed prospective. The CIT(A) and ITAT noted that these amendments did not apply to transactions completed before the amendment date, thus supporting the assessee's claim for deductions for the relevant assessment years.6. Reliance on statements and evidence found during search operations:The AO relied on statements and documents found during a search, suggesting a pre-planned merging of flats. However, the CIT(A) and ITAT found that the evidence, including BMC approvals and occupancy certificates, supported the assessee's claim that the construction adhered to approved plans. The merging of flats by buyers did not affect the eligibility for deductions.7. Interpretation of exemption notifications in light of Supreme Court rulings:The AO referenced the Supreme Court's ruling in Commissioner of Customs (Import), Mumbai v. Dilip Kumar and Company, emphasizing strict interpretation of exemption notifications. However, the ITAT found no ambiguity in section 80IB's language, rendering the ruling inapplicable. The clear compliance with section 80IB's conditions warranted the allowance of deductions.Conclusion:The ITAT upheld the CIT(A)'s decision allowing the assessee's claim for deductions under section 80IB, including lease income, based on compliance with all statutory conditions and the prospective nature of relevant amendments. The appeals by the Revenue were dismissed, affirming the assessee's eligibility for the claimed deductions.